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Ownership Structure and IPO Valuation—Evidence from Taiwan

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  • Yin‐Hua Yeh
  • Pei‐Gi Shu
  • Re‐Jin Guo

Abstract

We investigate the effect of ownership structure on initial public offering (IPO) valuation in the Taiwanese market, in which many large shareholders exert control through pyramidal structures and cross‐shareholdings with voting rights that are in excess of cash flow rights. Our analysis indicates that outside shareholders incorporate the effect of potential expropriation by entrenched large shareholders in valuing an IPO, since a deviating voting‐cash structure is negatively associated with the valuation metric at both the offer and initial secondary market prices relative to the corresponding intrinsic value. We also show that a deviating voting‐cash structure correlates negatively with IPO underpricing.

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  • Yin‐Hua Yeh & Pei‐Gi Shu & Re‐Jin Guo, 2008. "Ownership Structure and IPO Valuation—Evidence from Taiwan," Financial Management, Financial Management Association International, vol. 37(1), pages 141-161, March.
    • Handle: RePEc:bla:finmgt:v:37:y:2008:i:1:p:141-161
    DOI: 10.1111/j.1755-053X.2008.00007.x
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    3. Lin, Chih-Yung & Chen, Yan-Shing & Yen, Ju-Fang, 2014. "On the determinant of bank loan contracts: The roles of borrowers’ ownership and board structures," The Quarterly Review of Economics and Finance, Elsevier, vol. 54(4), pages 500-512.
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    5. Wang, Xiaoming & Cao, Jerry & Liu, Qigui & Tang, Jinghua & Tian, Gary Gang, 2015. "Disproportionate ownership structure and IPO long-run performance of non-SOEs in China," China Economic Review, Elsevier, vol. 32(C), pages 27-42.
    6. Ju-Fang Yen & Chih-Yung Lin & Yan-Shing Chen & Ying-Chen Huang, 2015. "Founding Family Firms and Bank Loan Contracts," Journal of Financial Services Research, Springer;Western Finance Association, vol. 48(1), pages 53-82, August.
    7. Alessandro Cirillo & Donata Mussolino & Sara Saggese & Fabrizia Sarto, 2018. "Looking at the IPO from the “top floor”: a literature review," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 22(3), pages 661-688, September.
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